If you're starting your own business and finding tax confusing, our simple guide to the different kinds of tax you need to know about will help. We've also included some helpful resources for more in-depth tax advice.

1. An introduction to tax for
small businesses
Tax is one of the most important things to consider when starting your new
business and with so many different types, it’s easy to get confused.
Our introduction to tax will help you get started. Here’s a quick overview of the
tax basics you need to know...
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2. PAYE Tax
Income Tax
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PAYE is a system used by HMRC to collect income
tax and national insurance from employers on
behalf of each employee.
You must deduct tax from your employees’
wages and pay it straight to HMRC each month.
Businesses are expected to report these figures to
HMRC before each payday.
The easiest way to run your payroll is by hiring
an accountant or by installing payroll software
yourself which stores all of your employees’ details
and automatically calculates what needs to be paid.
All businesses must operate PAYE regardless of
size. To register as an employer you must contact
HMRC at least two weeks before the first planned
payday.
Income tax is simply tax paid on your income.
If you’re self-employed, this includes any profits
you make.
Your yearly tax-free personal allowance of £10,000
is deducted from your profits and you are not
required to pay tax on this.
If you are self-employed you must complete a self-assessment
tax return and return it to HMRC by
31st January each year.
The current rates of income tax are:
Rate Band
Basic rate 20% £0 - £32,010
Higher rate 40% £32,011 - £150,000
Additional rate 50% Over £150,000

3. National Insurance
VAT
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This is the contribution an employee makes from
their wages to state benefits such as pension, job-seekers
allowance and bereavement benefits.
This must be paid by the employer on behalf of all
staff if the employee is:
• over 16 and
• earns more than £153 per week.
If you’re self-employed and make a profit of over
£5,885 per year you are liable to pay national
insurance.
VAT is a tax charged on most goods and services.
If your turnover is greater than £81,000 a year you must be VAT-registered. If your turnover is less than
that, you may register voluntarily. Registering for VAT means you charge VAT on the products and services
you provide and can also claim VAT back on any business supplies and services you buy yourself.
The current rates of VAT are:
Rate Application
20% this is the standard rate and covers most goods
5% a reduced rate is applied to items such as domestic electricity, fuel and power
0% VAT is not chargeable on items such as children’s clothes, books, and protective equipment
See the full list here (https://www.gov.uk/rates-of-vat-on-different-goods-and-services)

4. Corporation Tax
Capital Gains Tax
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Corporation tax is the tax charged on any profits your
business makes, but only applies if your business is a
limited company.
For the financial year beginning 1st April 2014 the rate
is 21% if your profits are above £300,000 and 20% if
your profits are below this threshold.
Circumstances where you can apply for a reduced rate
of tax include: if you make a claim for research and
development, if your company makes a profit from
patented inventions, or if you work in the creative
industries.
This tax only needs to be paid on any profits made
from selling assets such as antiques, shares and some
types of property. The full list of when this might apply,
including exceptions is here: http://www.hmrc.gov.uk/
cgt/
This tax only applies in certain cases. Limited
companies will pay corporation tax on assets sold
instead.

5. Further Resources
For more help with tax or running your business finances, take a look at these practical resources:
HMRC
The font of all tax knowledge, HMRC has dedicated
helplines and pages for all your tax-related questions.
Go to www.hmrc.gov.uk or call 0300 200 3211 (helpline
for new employers)
Find UK Accountant
If you’re confused about any aspect of your business’s
finances, it’s well worth investing in a good accountant.
For a good local accountant visit: http://www.find-uk-accountant.
co.uk/
Clear Books Must reads | November 2014
VAT Calculator
A quick and handy tool to help you calculate VAT
https://www.clearbooks.co.uk/resources/calculator/vat
Open Payroll
Clear Books’ payroll software can help you keep track
of all your employee payments and details: https://
www.clearbooks.co.uk/apps/payroll
Business Support Service
If you’re struggling with tax deadlines HMRC’s Business
Support Service can help: https://www.gov.uk/
difficulties-paying-hmrc